TSP Talk Blog

Stocks rallied in spite of, or maybe because of, some lackluster economic reports including weaker than expected retail sales. The Dow gained 178-points, the S&P 500 gained 1%, while the small caps, and particularly the Nasdaq, were up over 1%.

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With the FOMC meeting scheduled next week, and some Feds suggesting a possibility of a rate hike, the recent weak economic data may have helped nudge the decision to stay put this time. I still think they plan to wait until after the election regardless, but if the economic data is strong enough they may be forced to make a move. The weaker reports we got yesterday may give them the excuse they needed to remain on hold.

As you will see below, the S&P chart moved to a point where it's trying to breakout of a consolidation, or we just got the fake out we've talked about, so there's nothing solid to go on yet. We may get a better idea today but I suspect volume is going to start to dry up until the FOMC meetings are completed.

The SPY (S&P 500 / C-Fund) ran from the bottom to the top of the consolidation box we've been highlighting the last few days. Now the open gap (blue) is not too far away, but the breakout from the box is not official yet and in fact, could be a fake out. This looks like a good start but there's no guarantee that this mess is over yet with 3+ trading days left before the Fed decision on rates.




The fake outs tend to come on the lower end of these bull market pullback consolidations, as you see below, and that's the result of a run of the stops placed below the lows, and a capitulation from those who have seen enough and say get me out at any cost, and that generally triggers a reversal in direction. We didn't get one of those fake outs on the downside yet so that's why I am not totally ruling out that we could visit the bottom of the box again. Most of these make a move fairly quickly, but that box in July 2015 below lasted about 2 weeks.




The DWCPF (small caps) moved back above the 50-day EMA and has not filled the open gap near 1055 yet. There is a large gap up near 1100 so which will have the most pull in the coming days?




The Nasdaq has been performing well, thanks to strength in Apple's stock. It's the first index to fill its overhead gap after successfully defending the 50-day EMA. It looks good so far for this leader, and it's always good to see the tech heavy index leading the way.




The HYG High Yield Corporate Bond Index has also defended the 50-day EMA so far as it rallied above it after two closes right on the EMA.




The AGG (Bonds / F-fund) rallied modestly yesterday and again tested the bottom of the old support line. If that line can be taken out then the 50-day EMA comes into play as the next resistance. Then the open gap.



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Thanks for reading. Have a great weekend!

Tom Crowley


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